It's not every day that you sign a secured loan for hundreds of thousands of pounds.

So, if you're thinking about taking the plunge and getting a mortgage then you'll want to be clear on what is involved and understand some of the jargon which surrounds mortgages. Online mortgage company mform.co.uk outlines the basics.

The basics

A mortgage is just the name given to loans which are used to buy property. Mortgage lenders provide borrowers with the capital they require to purchase their property. They then intend that the borrower repay this sum with interest. If you fail to make the payments then you will have the property repossessed and the lender will sell it on to repay the debt.

At its most simple level there are two types of mortgage - repayment and interest-only mortgages.

As the name suggests a repayment mortgage involves repaying a percentage of your loan each month plus the interest due. At present a competitive interest rate is around five to six per cent but this will vary as the rate of borrowing set by the Bank of England fluctuates.

An interest-only mortgage means that each month you only have to pay the interest on the loan. This will work out much cheaper but as you are paying just the interest you will not have cleared any of the original loan. When it comes to the end of the term you will still owe the cash you’ve borrowed.

Counting the costs

When it comes to setting up a mortgage many lenders will charge you a substantial amount in fees. One of the most common types of fee is the arrangement fee - this is the fee that lenders charge you for allocating and administering the loan application process.

Another common type of fee is known as the Higher Lending Charge. These are charged if you borrow a large percentage, normally more than 90 per cent, of the value of your property. Lenders worry that because you've had to borrow such a large percentage you represent a greater risk, and this charge reflects that.

It's worth remembering however that lenders with lower fees may offer less competitive rates of interest on the loan. So be careful to bear this in mind when working out how much the mortgage will cost over the term and always focus on the true cost of your loan. mform.co.uk always shows the true cost.

Rating the mortgage

The interest you pay on your loan will have a big impact on its monthly affordability so when considering what type of mortgage to take be sure you fully understand the different rates available.

Fixed rates involve agreeing to repay your loan at a rate of a specified rate of interest. They are popular because you know exactly what you are going to have to pay each month.

Standard variable rate (SVR) involve making repayments in accordance with the rate of interest set by the Bank of England. Normally lenders will add an extra couple of percentage points.

Capped or discount rates are designed to offer the best of both fixed and variable rates. You agree to pay an upper or lower limit of interest, but should interest rates fall then you will benefit from the lower costs.

Re-mortgage

Mortgages can be expensive so many mortgage holders sign up to two or three year deals and then shop around for a new provider. Switching lender can involve paying new arrangement fees but can make sense in the long run if the offer is sufficiently competitive.

True cost

If you are considering taking out a mortgage then be sure to consider its true cost. This is the overall cost of the mortgage once you take into account all the fees. If you have a clear idea of what you will have to pay out at the outset and then each month following you should be in good position to decide who is offering the best deal.